A construction pipeline of 17,000 apartments in Greater Boston could put downward pressure on rents in 2023.
The vacancy rate – currently 5.6 percent, up from 4.2 percent a year ago – is expected to climb in the short term as large-scale projects near completion, according to a Colliers research report.
Asking rents have remained flat in the past year at $3 per square foot, as development delivered 8,000 units since the beginning of 2022. Another 17,000 units are under construction, representing 7.2 percent of inventory, with over 60 percent of activity taking place in Boston, Cambridge and the inner suburbs.
Demand for rentals remains high as rising mortgage rates have limited the ability of renters to enter the for-sale housing market, researchers Jeff Myers, Kelly Doonan and Kendin Carr wrote. Potential headwinds include a weakening job market, increased construction costs and new local regulations increasing affordable housing requirements.
Many of the projects nearing completion were financed before increases in interest rates that are putting downward pressure on the future pipeline, however.
“Increased construction costs and lower potential sales prices may make it harder to pencil out projects,” the report states.
Vacancy rates range from a high of 8 percent in the Route 128/Massachusetts Turnpike submarket to a low of 1.9 percent in the Route 195 south submarket. The South Boston/Seaport submarket has the highest asking rents at $4,271 per month, according to CoStar data on rental properties with 25 or more units.
Class B properties have outperformed high-end complexes, with concessions as a percentage of asking rents half that in class A properties.
Major projects scheduled for completion this year include the 526-unit Laurent in Cambridge, the 488-unit Dot Block in Dorchester and 370-unit Alta on the Row in Worcester.
FoxRock Properties recently began leasing at its 465-unit Ashlar Park development in Quincy. The first phase, an adaptive reuse of Quincy Medical Center’s former administration building, will include 65 apartments and an amenities hub, and is scheduled for completion in August. The property’s web site lists studios starting at $2,240.
Master developer US2 began leasing this month at Prospect Union Square, a 450-unit apartment tower on Prospect Street in Somerville.